The dynamics of Google’s $2.7 billion IPO is causing a great deal of work for the Wall Street brokerage houses involved. In preparation for the offering, these houses, while working diligently, may not receive the type of return normally associated with an offering of this size.
The search engine’s IPO is one of the most anticipated since the dot-com crash. However, the fact that Google will be offering their stock in a Dutch auction means that the 30 brokerage houses will be seeing a smaller return than normal for an IPO of this size.
According to The Seattle Times, anonymous sources involved with Google offering have told the AP that the costs of the auction-style IPO are higher than the traditional method, while the investment return is much less. These reasons are believed to be what led Merrill Lynch to drop out of Google’s IPO.
One of the major cost issues comes with the technology involved with this type of offering. The houses involved have to be networked together, while also being linked to Google’s central order book. Smaller firms seem to be affected by this the most because they have to completely upgrade their systems to meet Google’s strict security standards.
Google has also put pressure on these underwriting firms to have their systems available for a full test run by July 16.
Anthony Pergola, corporate partner at Lowenstein Sandleran and an IPO specialist, comments on why Google is taking the auction approach to their IPO:
“Back in the dot-com era, a lot of companies were angry when their target price would be set at, let’s say, $12, and then it rose to $50 or $100 on the first day. They left a lot of money on the table. With the auction system setting the price, it’s the company that’s going to benefit from whatever market hysteria there is, not the friends and family of the directors and not the underwriters who were paid in stock.”
Thanks to SearchEngineLowdown for pointing this out.
Chris Richardson is a search engine writer and editor for Murdok. Visit Murdok for the latest search news.
